What is Embezzlement?

Courts determine the question of substantial control by considering the employee’s job title, job description, and the practices of that particular company.

A Case of Embezzlement?

That’s why a lot depends on what Eric means when he says that his partner “borrowed” money. Let’s say Eric is using the word “borrowed” purely ironically and there was no loan agreement. If the partner had access to company money for legitimate purposes, but then started skimming the money for his own personal use, then the partner may well be embezzling.

On the other hand, if the partner gained possession of company money through some trick or deception, then he might be liable for a slightly different crime known as fraudulent conversion.

On the third hand -- so to speak -- if the partner actually has a loan agreement with the company and he’s simply falling behind on his payments, that’s not embezzlement. In fact, it’s not even a crime. In the United States, we got rid of debtors’ prisons in the 19th century so, generally speaking, you can’t get locked up for failing to repay a loan. Good news, I’m sure, for many of us. But frustrating, nonetheless, to many creditors.

But wait. Let’s say that the partner did enter into a loan with the company but Eric thinks he can prove that the partner never intended to repay the loan -- in other words, the whole thing was a sham. Well, now we may be back to fraudulent conversion, or, depending on the state, it might just be plain old fraud.

Needless to say, criminal law is serious business. If you think that a crime is being committed, you should consult with a lawyer and/or law enforcement officials in your state or city.

What Does the IRS Have to Do With Embezzlement?

One interesting point about embezzlement. As far as the IRS is concerned, embezzled funds constitute taxable income to the embezzler. Thus, if Eric’s partner has been siphoning off funds without proper authorization from the company, then he should have been reporting it as income. And for these purposes it doesn’t matter if the partner intends to pay back the money someday. If there isn’t an actual loan agreement then the IRS considers any money skimmed off the company as embezzled funds. If the employee does pay back the money someday, then he or she can put in for a tax refund.

Thank you for listening to Legal Lad’s Quick and Dirty Tips for a More Lawful Life.

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